Creating an off campus experience for … oh … free

Off campus programs (OCP) may have waned a little in popularity in the past few years but spending a semester abroad remains a draw for a number of students, especially those who are stronger academically.  Unique and high-quality programs are a distinctive that may be of great benefit, particularly to an institution with softening demand.

The problem? They are expensive.  Institutions handle this cost in a variety of ways.  Some charge a normal semester’s worth of tuition, room and board, allowing the student to receive institutional aid but with the institution writing a check to the provider.  That check is often a lot more than what the institution collects from the student.   Others replace the student’s normal bill with whatever the OCP charges, passing along the program’s cost but still losing that student’s net tuition, room and board for a semester.  Some have their own programs and save a little by not using an intermediary.  Others offer limited slots so that the number of students either extracting large checks or foregoing tuition is a managed budgetary item.  There really is no one way to handle this and each of the ones I have mentioned represent budgeted commitments, subject to curtailment if finances are constrained.

Let me suggest creating your own program and funding it by bringing in students from other institutions.  This is an approach that I used some time ago to establish a program in Africa; one that is still in operation some fifteen years hence.  Other programs, established on a more expensive paradigm lost their financial footing when budgets were tightened.

Consider then this sequence of actions to establish a financially viable program.

1.  Begin with a capable champion.  Ideally, use a faculty member who has a background either in related research or has actually lived in the country of interest.  He or she must also be willing to spend a semester abroad every year or every other year and be the faculty member of record for the program.  This person will personify the program so they will need to be charismatic (see 5. “Go on the Road” below).

2.  Create a broadly beneficial curriculum.  Some programs fail to attract a reasonable number of participants because the courses offered by the OCP are too narrowly focused on specific majors.  Create a curriculum that satisfies some major requirements but will also benefit those who are minoring in a discipline or need various upper level electives for general education.  Part of the work of the champion is to find local adjuncts to provide appropriate options for students.  The more the better.

3.  Put a realistic budget together for the program.  This is an area where the champion will research the various options for lodging, transportation, instructional space, food, field trips, insurance, adjunct faculty etc.  Include the cost of the group traveling to and from the experience as well and the cost of marketing materials.  The budget is a critical piece that must be locked down with a measure of certainty.  When in doubt, estimate high.  The institution will cover the cost of one faculty member for the semester so the sponsor/champion does not need to be covered by the budget.

4.  Establish the financing / recruitment plan.  The typical ratio is to enroll 60% of student participants from your institution and 40% from other institutions.  Charge a fee on top of a normal room and board charge and call the entire cost an OCP participation fee.  I suggest about $850.  The way it is financed is that the OCP participation fee from ALL participating students is added to the tuition charge for the outside students only.

As an example, suppose that a total of twenty students are budgeted to participate in your program, under the 60/40 split of those from your campus and students from other institutions.  Presume that your normal room and board costs $2,150 per semester and a program fee of $850 is added on to create a total OCP Participation fee of $3,000 per student.  Presuming also that a semester’s tuition is $14,000, consider the following grid:

Budgeted OCP Revenue            Net Tuition   OCP Part. Fee      Total

Your institution (12 students)             $0              $36,000         $36,000

Other institutions (8 students)      $112,000         $24,000       $144,000

Total revenue available for semester-long OCP budget          $180,000

Your own students receive whatever financial aid they normally get and off campus students receive no institutional aid from your school.  Your students pay a mere $850 more than they would normally pay for a semester abroad.  The spending budget works out to be $9,000 per participating student, in this example.  It can be made lower or higher through reductions or additions to the outside students participating or by reducing or increasing the OCP participation fee.  Work your magic with Excel.

The invoices for outside participants are sent-to and paid-for by their sponsoring institution.  Ideally, those students will receive their normal financial aid from the sending college or university.  They will also receive course credit from their sending institution.  This justifies using their entire tuition for program needs.

5. Go on the road.  Obviously, this approach relies on selling the program to other institutions. Create marketing materials and travel around the country (include this in the program budget) to promote the program to other institutions.  The Champion will be touting the benefits of the program directly to whomever will listen.  Ideally, they speak to students in classes for the disciplines that benefit from this kind of an experience.  A chapel message is even better.  These should be story-based lessons, versus a description of the program. Save that for the end, after you have hooked them with your stories.

6. Establish sign-up deadlines.  In my example, you will need twelve students from your own institution and eight from others.  You need to nail down both by a certain date but, if experience is any guide, the off campus students will be the ones who are the hardest to sign up.  They bring the greatest dollars, however, and are needed to fund the cost of your own students.  If the deadline passes and the number of students from elsewhere are not in the ballpark of what is needed, the program cannot come off.  This is a critical standard because a failure to attract other students will created a budgetary burden from the program and result in its cancellation whenever a new budgetary crisis erupts.  And they do occur from time to time.

7.  Bring on a logistical expert.  This does not have to be an expensive position to hire in for.  Sometimes, enthusiastic champions cover the logistical issues for their first year and budget for that person if the program is a success.  Coordinating an off campus program is challenging, however, and students don’t always want to comply with deadlines and requirements.  The logistical person’s work is ever more critical if self-managed OCPs become a hallmark for your institution.

Closing thoughts

I have structured the financial arrangements and my dear wife the logistics of registration and travel for institutionally operated OCPs.  These initiatives can bring substantial benefits to the institution, even representing a draw for the high-achieving student.  If you create an appealing program and can sell it to other institutions, this entire process can be pulled off without a hit to your net tuition budget.

Let’s talk!

The CFO and Fundraising.

For a variety of reasons, the advancement / development / fundraising operations of an institution tend to operate in ways that drive CFOs nuts.  Since no rebuttals are accommodated on this blogsite, you may be expecting me to unload on those back-slapping marketing types who travel extensively, spend like Caesar and who think all raised dollars are created equal, even if the ones raised today are from the estate plan for a 30 year old!

No, I will not be doing that.  I will say that CFOs can be brutal to advancement operations.  Some of the comments I have heard from colleagues are downright nasty.  It is unfortunate because the function performed by the advancement department is critical to the institution’s long term success.  Too often, shortsightedness on the part of the CFO leads to a challenging relationship that shouldn’t be.

So, let me spend some time defending those who are charged with raising money for our colleges and universities.  Many are accomplished professionals who have to create success from scratch every day.  There are few inherited clients in that business; you have to find them, then friend them, before collecting funds from them.  That cycle could take years, with the risk of the slightest misstep alienating even the most successful relationship builder.  It is hard work and those who are successful at it have a combination of savvy and training that is worth a lot more in a sales career elsewhere.  They have given up a great deal to serve in these capacities.  Maybe that is why it is so difficult to find leadership in that area.

Consider then these comments and recommendations.

First, the most important function Advancement performs is their efforts directed toward planned gifts.  Say what?  You mean the raising of moneys that will not arrive until years from now is to be commended?  We certainly don’t pay these folks with future sums.  What can a CFO be thinking?

The majority of transformational gifts come from some form of planned giving.  I include in that category gifts that are received from those who are still living but can see the end of the road drawing near.  There is a near universal fear people have of being forgotten.  What happens to me after I move on to the next experience; one that I have faith that I will enjoy but know very little about?  Will the values and dreams that I have for those remaining in this world continue to be championed by those who follow?  Will my heirs be good stewards of the funds I leave them, reflecting my values in their spending decisions?  What statement will be made about me by the estate I leave or the gifts I give as I approach the end of this life?

All of these emotions and desires are fundamental to the human experience.  In general, gifts that are dedicated toward immediate expenditure come from the donor’s current earnings.  Gifts that change the world for generations tend to come from assets accumulated over a lifetime.  Regrettably, many institutions, strapped for current cash, place an unrealistic emphasis on raising current, unrestricted donations to make the budget balance.  I’ve heard the arguments that this gets people in the habit of giving and opens them up for more later on.  That may be true for some but the really big givers are fully familiar with philanthropy and are less interested in paying this month’s light bill than in funding scholarships for a generation not yet born.

When a solid planned giving program has been established over twenty years, the funds will come rolling in.  So what if they are restricted?  They can be used to reduce the costs of student attendance or running a program, thus bringing down the high cost of higher education.  Donors are in favor of that, particularly when their name is associated with an ongoing endowment gift.

So, try to avoid the tyranny of the urgent and invest in planned giving.  Your successors will thank you.

Second, avoid unnecessary gift restrictions.  Some institutions solicit endowments for scholarships alone and ask the donor to stipulate as many restrictions as possible, even providing a worksheet that gives the donor ideas they  would have never thought of.  This can backfire when stipulations are so rigid that few qualify for the scholarship or programs that are supposed to benefit from the gift are curtailed or eliminated.  A general restriction for an endowed scholarship is fine.  A restriction that supports a chair in business ethics may support the cost of a faculty member, including his or her teaching loads.  An endowment for which a building is named may be used to pay for the upkeep or operation of the facility over its lifetime.  Those who follow you will thank you for reasonable, budget-relieving restrictions.

Third, endowed scholarship awards should never be treated as a bonus to the student.  Some institutions do not award scholarships until the student applies for it in the fall semester for the current year.  In those cases, the student is already here and supposedly has put together the way to pay for their schooling.  If the award is granted, it becomes a rebate of sorts.  The student can always use more money but their financial aid package has already been set.  Givers to endowments want to see scholarships that are of primary benefit to the student and help to reduce tuition discount costs to the institution.  It is a double win that benefits student and institution for generations to come.  Applying for bonus payments does not meet those goals.  If at all possible, package endowed scholarships with the aid plan that is sent out in the spring.  It is a better way to guarantee mutual benefit to student and institution.

Fourth, current funds do need to be raised and their total should exceed the cost of the advancement operation.  Not much more should be necessary.  I have seen institutions who raise $1 million in unrestricted annual funds but spend $1.5 million of their advancement operation.  Of course, some of those efforts are used toward planned giving.  Still, it is not recommended that operational cash be used to supplement the advancement effort.  Make sure the operation pays for itself while avoiding an unhealthy focus of raising too much in current dollars versus emphasizing planned gifts.  Balanced stewardship avoids students complaining about their tuition dollars being invested in fundraising and faculty believing they are not paid as well as they should.  This should be a part of the institutional goal set for advancement.

Finally, exercise care when making reductions to your advancement operation.  Make sure that the various initiatives that are invested in each year are evaluated for their effectiveness and efficiency.  Are people meeting their goals?  What is the cost/benefit relationship? When reducing a person from the team or eliminating an annual initiative, the question must be asked whether the institution will be better or worse off next year.  It may seem like an easy target to unload a fundraiser.  Make sure that you can justify what may be the outcome from that action.

In conclusion, the CFO needs to be a strong supporter for the advancement effort, encouraging careful stewardship of the activities of that area and emphasizing initiatives directed toward planned giving.  Don’t place too many restrictions on planned gifts; ensure that they can be used to offset other institutional costs.  And make sure that funds raised for current spending cover at least the cost of the advancement department.  If cuts are proposed, avoid those that generate much more benefit than their cost.

Advancement is your friend.  The benefits of that friendship may not be realized by you but your successors will be awfully grateful for the efforts taken today that bring greater stability tomorrow.

A linked article on tuition cuts and freezes

I found this article on tuition freezes and reductions.  It reiterates my issues with it.  Actually, it recommends that the reduction only apply to new students.  Some have attempted to apply it to everyone and wind up with less tuition revenue from returning students that would otherwise have occurred.  Anyway, it is a good primer for those thinking about this strategy.

http://www.finaid.org/questions/tuitionfreeze.phtml

Do you have any issues that you would like me to blog about?  Send me an email at:

jeff@cfocolleague.net

 

Performing Financial Assessments of Programs / Departments

One of the areas where a good deal of conversation has occurred of late is on the topic of program evaluation.  Specifically, leaders are wanting to understand how to review a program financially to determine whether it should be shuttered, maintained or invested in.  While there are no generally accepted mechanisms used to numerically and financially evaluate a program or department, let me wade into the conversation with a couple of ideas, recognizing that this could be the most controversial exercise any leader undertakes.

I start with the assumption that few, if any, fixed or non-related costs will disappear if a program is eliminated.  That is, the cost of buildings and various offices scattered about campus will continue at the same level with or without the program.  This is an important assumption because, too often, a program is burdened with the allocation of ALL the costs of the institution, even though non-direct costs will not go away if the program does.  I am thus looking at the direct financial contribution that is received from students either from: 1. taking courses from the department or, 2. from declaring a major.  We’ll start by considering a specific course.

1.    Identifying the marginal contribution for a specific course

Beginning with the revenue side, it is important to identify the net contribution per student that is gleaned.  Ideally, your institution’s administrative system is able to calculate net tuition revenue for each student, based on the hours they are taking and then apply those net tuition revenues to individual courses. Recognizing that this might not be a feature of your ERP system, you may want to use discount rate by class to determine how much net tuition revenue is generated per student. As you may have seen in my other postings and from a review of my comprehensive forecast, I am a proponent of discount by class.

a.  Calculating Gross tuition for the course

Begin with the flat rate for tuition and divide it by the average number of credits taken per year.  For most institutions, this is something less than the 31 semester hours that students need to take in order to progress toward a four year graduation.  I use 30 as a round number but the average course load is probably available for your institution.  In the example below, if your tuition rate is $22,500 per year, dividing that by 30 yields an effective rate per hour of $750. A four hour course thus generates $3,000 in gross tuition per student.  Of course, we all understand that few pay full price.

b. Factoring in tuition discounts

You then set up a grid with the average discount rate by class (freshman through senior) and enter the number of students who are taking the course for each class.  Let’s presume we are looking at an upper level course that has 2 sophomores, 7 juniors and 4 seniors in it, for a total of 13.  Then, presume that the discount rate is 40% for sophomores, 36% for juniors and 32% for seniors.

c. Faculty cost for the class

Take the faculty salary and benefit cost and divide it by the faculty member’s teaching load.  Teaching load is important because the faculty member may be given load credit for other assignments.  In general, most faculty have contracts to teach 24 semester hours in an academic year.  In that case, the total cost of the faculty member is divided by 24 to reach the net cost per hour taught.  A four hour course is four times that.

d. Departmental cost per class

Divide the budgeted departmental costs by the total annual classes taught by the department.  Presume for sake of ease that the department has two full-time faculty who each teach a 24 hour load, comprised of four hour courses.

e. The result is net tuition revenue (NTR) contribution for this course

Here, then, is the math for this course:

1a. and b. above – gross and net tuition by student classification

Soph              – 2 X $3,000 = $  6,000 – ($2,400) =    $ 3,600 NTR

Juniors           – 7 X $3,000 = $21,000 – ($7.560) =    $13,440

Seniors          – 4 X $3,000 = $12,000 – ($3,840) =    $  8,160

Net Tuition                                                                              $25,200

b. Faculty  – $60,000 + $20,000 = $80,000 / 6 courses =       (12,500)

faculty cost:   salary + benefits  = Tot Comp / load  

c. Departmental (non faculty) cost:  $18,000 / 12 courses =   ( 1,500)

d. Net marginal contribution for this course                            $11,200 

So, what does this tell us?

First of all, the cost per course appears to be $14,000, made up of ratable portions of the faculty cost and departmental direct costs.  With this profile of students generating about $2,000 apiece of net tuition revenue (NTR) per course, at least 7 students would be needed to not lose money.  Of course, this will depend on the student classification and discount rate.

Second, you can take the net contribution and multiply it by the number of courses offered by the institution.  Does the total cover all the other costs that the institution has to cover, beyond faculty salaries and departmental costs?  Chances are that it won’t.  That exercise would indicate whether this department is fully pulling its weight or is insufficient in providing for the overall costs of the institution.  If it does not pull its weight, this does not mean that you close it.  Again, if no indirect costs will be reduced from the closing of the department and the department is marginally contributory (more than covers its direct costs) other factors have to be considered before closing it down.

Nest,  as a further exercise, count only the net revenue from students who are taking this course for major credit.  Ignore minors and those taking it for elective credits.  This will decrement your revenues – maybe by a lot.  You may find that majors, by themselves, are not carrying the cost of faculty or the departmental costs.  The idea here is that students have a much higher propensity to choose an institution for a major level program than for a minor.  It also extracts all of those who are taking a class for general education or elective credit.  These students are also unlikely to choose an institution for those purposes.

This is one approach but is generally the easiest to perform, provided you capture discount rates by class.

2.    Calculating departmental / program revenues apart from individual courses

This may be a more common approach to assigning revenues and costs to a department or program.  It uses some of the methodology seen above but applies it to the net tuition revenues that those who have declared a major in the department or program bring to the institution.

a. Calculating the gross tuition that the institution receives from declared majors

Multiply the number of declared majors by the annual tuition rate for the institution.

b. Factoring in tuition discounts

Create a grid that breaks down declared majors by classification, applying the class-average discount rate to the calculated gross tuition eg. (# of sophomores times gross tuition minus the average discount for sophomores equals net tuition contributed from sophomore declared majors).  The same is done for all classes where there are declared majors.

c. Faculty and departmental costs

These are calculated together, based on budgeted amounts for the department.

d.  Net contribution (deficit) for a department

Net tuition from declared majors minus total departmental costs, including faculty costs.

The math

Presuming the same discount structure above, I will add a 44% discount for Freshmen to the list.  We now have Freshmen at 44%, Sophomores at 40%, Juniors at 36% and Seniors at 32%.  The calculations follow:

2a and b – Net tuition contribution from declared majors

Classification     No.*  Tuition  =     GTR    –  (Discounts)  =   NTR

Freshmen:         2 @ $22,500 = $  45,000 – ($  19,800)  =  $ 25,200

Sophomores:     5 @ $22,500 = $112,500 – ($  45,000)  =  $ 67,500

Juniors:             4 @ $22,500 = $  90,000 – ($  32,400)  =  $  57,600

Seniors:             3 @ $22,500 = $  67,500 – ($  21,600)  =  $  25,900

Total                14 @ $22,500 = $315,000 – ($118,800)  =        $196,200

2c – Departmental cost, including faculty:

Faculty salary and benefits:           2 @ $80,000  =  $160,000

Departmental costs                                                  $  18,000  ($178,000)

Net Departmental Contribution                                                   $  18,200

3. Are we done yet?

No approach to assigning contribution from a program or department is 100% spot on.  And, even if a positive number is the result, it may be so meager that it is worth considering a new program to replace such a small contribution.  I would suggest that the analysis above suggests just that.  A mere 14 declared majors supporting two full-time professors could not possibly be extrapolated across the campus successfully.  It may be that the program is put on watch and strategies developed to enhance it over a period of time.  If those efforts fail, a department with such a small contribution may have to be curtailed.

Some will argue that their program attracts students but that the students fall away as they succumb to the rigors of the discipline.  While this has been demonstrated to be true, it generally applies to larger majors and the resultant calculation of major contribution remains strong, in spite of those who wind up majoring in something else. Rarely does a program attract fifty freshmen and wind up with three seniors, unless it’s a chemistry program with a good deal of sampling going on.

Another argument is that non-declared majors should be added to this list. I counter that major level courses tend to be taken by students in their second through fourth years.  By that time, most have declared a major so that they can have preference in scheduling more popular courses (we can only wish that this is the case at all institutions).  Students also want an advisor in their major and the only way to be assured of that is to declare the major.  For most institutions, holdouts who declare in their junior or senior years are somewhat rare and the subject of campus lore.

Then, there are those who believe that some allowance for teaching general education courses should be made.  Indeed, the first analysis does that, at least before pulling out non-majors. I am not inclined to support the evaluation of a department or program based on numbers in general education classes.  Students rarely, if ever, choose an institution because they can take a specific general education course.  If a specific course is popular, the major will likely be popular as well.

Added to all of this are a number of institutional factors including the complementary nature of one struggling department with another healthy one.  The historic mission of the institution is also at play, as is the interest of major donors in retaining programs that they majored in back in the day. Probably the overriding factor is how truly difficult the times are and what needs to be trimmed in order to remain in business.  Sadly, some institutions are facing that very situation at this time.

In the end, understand that eliminating majors, programs or departments is a defensive strategy.  It is calculated to result in fewer students and the institution must adjust its forecasting to accommodate for that.  This is not a growth strategy unless one program is forfeited in favor of another, more popular one.

At any rate, I wish you well. 🙂